Replies to post #128553 on Avid Bioservices Inc (CDMO)

[Hellassss]

I don't can explain why, or rather, I couldn't explain what I think about it, but could do it only in italian! :)

In general, when I started my investment, the flagship product was Cotara. In these 10 years (they are many, but I admit that in the period of reverse split, I unplugged a little bit my brain, trying to forget my investment a little bit), many things have happened, many mishaps, most of which I haven't even understood (cause of the english technical language.... only lately I've been perfecting). And I must admit that for a while Cotara has been "set aside" in favor of Bavi.

So I'm not the best person to explain the dynamics of these years of Cotara. But you don't even believe that I'm a disillusioned, there have been many times when I wanted to drop everything and take home my losses. I know that exists the possibility that both Cotara + Bavi may never come on the market, but it's part of the game.
Well I've had in the past and even now I have some doubts on the work of King & co., but I can't ignore the fact that after years of waiting we now have two PHIII, both for Cotara + Bavi.

Moral of the story: I don't think I'm the best person to explain the dynamics of Cotara techniques and developments over the years, my investment is atypical, born for "sentimental" reasons and continued for perhaps unconsciousness. Of course, now I hope for the "final reward", like ever here, but obviously I don't have a crystal ball and only time will tell if I was smart or stupid to persevere.

imho.

[golfho]

Hi Stockharvest and welcome to the board;

I post very infrequently so you may not be familiar with my line of thinking; it is similar to yours in that I research stocks looking for opportunities that are good long term bets. I’ve been in this stock for over 12 years. Like many here, I invested in TLCN (Former PPHM) because of the promise of Cotara. It had orphan status in the US, it was going to go to China for lung cancer, Avid was going to manufacture tons of Cotara. In 2003 Mr. Swartz took over TLCN and merged it with PPHM. Peregrine owned the IP for Bavituximab. Bavituximab was in pre-clinical studies. There were safety concerns with the Cotara’s delivery system; through a government grant a new delivery system was developed and Cotara had to start again with a PI trial. Mean while Bavituximab has steadily progressed through many PI & PII trials in many indications…It has far surpassed Cotara in potential medical importance. Revolutionary, dare I say. Prompting me to refer to Bavituximab as the BIG ENCHILADA ©. It appears that management, with limited resources has moved Bavituximab as fast as possible while still trying to move Cotara along.

Most of my posts focused on two subjects:
The risks of this proposition
The possible rewards for this proposition

I’ll save you some time by reposting the Risk portion of my most recent assessment:

QUOTE:
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Note: the latest and most definitive assessment of clinical trial failures was written by Joseph DiMasi from Tufts.

http://www.biotech-now.org/business-and-investments/inside-bio-ia/2010/11/clinical-trial-success-rates-recent-study-from-tufts#

More on the matter:

http://biostrategics.wordpress.com/2011/06/27/clinical-trial-probability-of-success-just-how-probable-is-a-great-outcome/

And still more on the matter:

http://insidebioia.files.wordpress.com/2011/02/bio-ceo-biomedtracker-bio-study-handout-final-2-15-2011.pdf

The above assessments place the probability of success for a biologic in oncology, that completed PII trial and needs to successfully complete a PIII and get FDA approval at (.34 X .8 = .272). Note that for NSCLC the success rate is 2%...!!!
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The reward portion of this proposition changes based on your individual entry point and the current price. In the assessment that I made on 9-23-13 (The day before BLACK MONDAY) I reasoned that at the current stock price ($5.39) the proposition still made sense.

QUOTE:
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In that post I set the risk factor at ~ 3:1. Newbies should read both posts. Think about it, you are given a one out of three chance of winning a bet, any bet. To put it another way; there is a roulette wheel, a roulette wheel with only three numbers. A one dollar bet on an even money bet would pay one dollar, that’s not a good bet, you have two chances to lose for every one chance to win. Now, if a dealer offered 2 dollars for a one dollar bet some people would say “wow I could double my money and make that bet”. If the dealer offered 3 dollars for your one dollar bet then that is a “true odds bet” for that 3 number roulette wheel. The odds are correct.
So, now let’s apply the simple logic to PPHM. If you purchased shares at $.40 a few months ago, when the shares arrived at $1.20, the proposition called “Investing in PPHM” satisfied the risk. Everything else is extra gravy. If you purchased shares at $1.00, when the share price arrived at $3.00,yep, you got it by now.

On Friday PPHM closed at $5.39. In order for the risk to be satisfied, the price has to be $16.17. That’s not to say that you can’t take the money and run at any price over $5.39. Taking money off the table is never a bad thing. The point I’ve been making is currently you should triple your money (Reward) in order to get paid correctly for the risk.

1- Let’s just assume that the first and only indication for Bavituximab is second line NSCLC. Management has indicated that that market might be worth 1B dollars annually. You can do your own research. When will that happen? Let’s just say in three to four years. (PIII + FDA review) So in 3 or 4 years the partnership could be looking at a revenue stream of ~$1B annually. At a 20% royalty PPHM could be receiving ~$200M in annual revenue. Even for a stodgy big Pharma with an EBTDA of 5 the enterprise value would be $1B, discount that at 20% per year to today yields a current value of…($1BX.8)X.8X.8X.8= $409M. The above does not include any up front money or milestone payments, nor does it include Avid revenue. That should be compared to today’s value of ~$561M. So, with only addressing the second line NSCLC and nothing else, PPHM is properly valued.

What is the reality of Bavituximab working in only one indication…?

IMO ZIP…!!!

It has already demonstrated efficacy in:

1. Ph.2 Bavi+Doce/BREAST/Refractory MOS=20.7mos
2. Ph.2 Bavi+PC/BREAST/Frontline MOS=23.2mos
3. Ph.2 Bavi+PC/NSCLC/Frontline MOS=12.4mos

It has completed and is awaiting results on the following:

1. Phase IIb Bavi+PC vs. Front-Line NSCLC
2. Phase II Bavi+GEM vs. Front-Line Adv. Pancreatic

There are 5 IST in process that will report over the coming few quarters:

1st IST Ph.I/II Trial (Bavi+Sorafenib vs. Liver Cancer/HCC, open-label)

2nd IST Trial (Bavi+Paclitaxel vs. Her2- Met. Breast Cancer, open-label Ph.1)

3rd IST Trial (Bavi+PemCarbo vs. Frontline NSCLC, open-label Ph.1B)

4th IST Trial (Bavi+Cabazitaxel vs. 2nd-Line PROSTATE(CRPC) Cancer, open-label Ph.1B/IIA)

5th IST Trial (Bavi+Capecitabine+RAD) vs. Rectal Cancer (Ph1, open-label)



OK now DD, AF, eric, et al, pay particular attention to the following:

Let’s pick a very large tentacle…

Bavituximab delivers…

It is what the hypothesis suggested…


Bavituximab targets PS and activates the immune system. Certain PS inducing components i.e. Chemo, Radiation, etc. enhance that effect. And…It is broad spectrum.

I shiver…

You should be shivering too…Maybe for different reasons…

In 6 to 8 years Bavituximab could be used in many…and I mean many…as in MOST cancers.

6 to 8 years is a long time…Many things can happen. One of those things is the reality that Bavituximab is real…

What is the total Oncology market today?

From this:
http://www.prnewswire.com/news-releases/the-cancer-market-outlook-to-2014-competitive-landscape-market-size-pipeline-analysis-and-growth-opportunities-now-available-on-reportsandreports-87326377.html

We get a number like $47.7B…

Let’s just say that we capture ~30% of the market (Assumes that Chemo, Radiation must be in the formula) = $15.9B

That’s annual sales…

Even for a stodgy big Pharma with an EBTDA of 5 the enterprise value would be 5 X $15.9B = ~$79.5B

Now we go through the same silly exercise of discounting 20% per year…from 6-8 years from now...blah…blah…blah…

We get ~$13.33B to ~20.84B in market cap…!!!

We now have ~104M shares outstanding…Throw in options (That’s for you Jakedude) and round it up to ~150 shares outstanding (I know…I’m being very generous). Throw in the $150M shelf…That’s about 28M shares. Let’s say all those shares go to our partner/partners and round that up to a total outstanding share count of 200M. So divide the potential market cap by the number of shares outstanding you get…

At a market cap of ~$13.33B we get a share price of ~$66.65
At a market cap of ~$20.84B we get a share price of ~$104.20

How does that compare to $16.17…?

The above does not include imaging, viral, R84, etc.

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MY 3-10-13 THOUGHTS ON PARTNERING:

QUOTE:
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Between then and today we have had the destruction and resurrection of the flagship NSCLC trial replete with intrigue, scandal and taint…Good grief…!!!

We have also received the preliminary results for the pancreatic caner trial that was not the homerun that we had hoped for.

The PPS has been taken to the wood shed and set upon with 2X4’s

And it appears that, whatever “letter of intent” signed with BP around September has been postponed, suspended or cancelled.

So now I will try to look forward and try to scope what a deal will look like and in what time frame.

I think that many of us thought that a tentative deal was agreed upon in September. The 2 new board members remark stands out. If this were a regional deal; how would a second partner fit in? Things start to get sticky…Not impossibly…Just sticky. Who’s the principal partner? Who’s the junior partner?

I’m a big fan of KISS (Keep It Simple Stupid)…So for now, I’ll go with a single partner.

What does PPHM want?
It seems to me that they are moving second line NSCLC as fast as possible, AA, Breakthrough Designation and a mid-PIII look into the trial. They floated a 600 patient trial…Does any company float a number for a PIII trial before and EOP2 meeting with the FDA? Is that a King miss-step? Or has Garnick already established some parameters with the FDA? They have reported preliminary results for pancreatic cancer and will report on the first line NSCLC within the next few months. Let’s not forget the previous signal seeking PII trials and the ISTs.
In my view the answer is; they want to initiate as many trials as they can and as quickly as possible. That’s a lot of money.

My back of the envelope:
~600 patient PIII trial for second line NSCLC ~$50M to $65M
~100 patient longer PII trial for pancreatic cancer ~$10M to $12M
~100 patient PII trial for prostate cancer ~$10M to $12M (If IST is successful)
~600 patient PIII trial for breast cancer ~$50M to $65M
~100 patient PII trial (With radiation) for rectal cancer ~$10M to $12M (If IST is successful)
~300 patient PIII trial for liver cancer ~$30M to $36M (If IST is successful)

Approximate trial cost for the above 6 trials = ~$160M to $202M spread over the next 4-6 years.
The company has an accumulated debt from inception of approximately $338M. I’ll SWAG the Bavituximab portion at ~40%, ~$132M. I will also assume that the company will want to get seed money for viral and imaging. ~$20M to $30M…???

So my back of the envelope SWAG gets me to ~ $312M to $364M in upfront and milestone payments. In addition a 20% to 25% royalty on sales. I would love to see them get co-promotion in the US as well.

My timeframe for the start of a revenue stream is ~4 years from now. That would be ~first quarter 2017. With AA or Breakthrough Designation that could be as early as first half on 2014.
Cotara in my view is on the back burner, management stated at the Cowen conference that first half of 2014 was their new partnership goal. I don’t think that there is much BP interest. Bavituximab is the word. I will restate my assessment of Cotara from 2 years ago:

“4- The terms of any partnership agreement.
If I am correct in my assumption that the company walked away from the R & R deal of ~ $35M, one would expect that any deal will be for a higher up front amount. The R & R deal did not state a royalty amount. I will go with LTC’s 20%. So, what is a reasonable up front amount? IMO, it should include the full cost of the PIII trial, in addition it should include a fair amount of the development costs. (Does anyone have any knowledge in this area?) In addition, it may include perhaps, a lump sum figure representing a portion of the annual market.

My SWAG…Trial cost ($24M to $37M) + Prior development cost ($20M to $30M…???) + Lump sum ($35M to $70M…???) = $79M to $137M”

And of course, there is always a possibility that Bavituximab and Cotara could go to a single partner.

I would hope that they could conclude a partnership agreement before the annual shareholders meeting.

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In conclusion; I stand by my assessment. I’m not sure that there will be any partnership deal signed before the end of FY CC in mid July but I still hope that things can be concluded before the mid-October Annual Meeting.

Regards
golfho